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How Can a Management Service Organization (MSO) Restructuring Cut Costs?

management service organization (MSO)

Management Service Organization (MSO) restructuring essentially provides non-clinical, administrative support services to physician group practices and other healthcare providers. One of the main purposes of MSO restructuring is to reduce the non-medical business tasks that licensed healthcare providers normally have to do, allowing them to focus on the clinical aspects of their medical practices. 

In addition, MSO restructuring is used to avoid state “corporate practice of medicine” (CPOM) laws prohibiting non-physician-owned businesses from practicing medicine or employing licensed healthcare providers. Nonetheless, MSO arrangements need to be drawn up carefully to ensure that a business does not exert undue control over the healthcare practice and contravene CPOM rules in the process.

Many companies claim that this kind of structuring is highly cost-effective and will make the entire market cheaper. Are they right? This is the question we will be exploring, as well as some possible financial and ethical issues with such restructuring.

Why Go Through a Management Service Organization Restructuring?

There are several financially motivated reasons to promote MSO restructuring, including:

  • Improved quality and cost: MSO restructuring standardizes care management delivery across the enterprise. Member identification, risk stratification, attribution, care management staffing, population health reporting, and analytics can all be streamlined by using a common governance structure. An MSO offering these services is able to improve utilization and, in turn, spending and profits.
  • Economies of scale: Centralizing administrative and management functions across a business enhances efficiency and standardizes services while creating an economy of scale on a per member, per month (PMPM) basis. Through these economies of scale, MSOs incentivize the health system to seek partnerships that will boost membership and decrease PMPM administration costs.
  • An incentive for network expansion: For health systems interested in expanding their provider network, MSO restructuring can be an incentive to attract potential partners. A strong MSO is market-attractive as it allows the provider to focus on providing quality clinical care without needing to direct a lot of attention and resources towards administrative and management functions.
  • Multi-payer managed care arrangements: Health systems that operate in competitive, multi-payor environments can benefit, financially, if they move administrative functions away from the health plan and into an MSO. This enables greater control over medical spending. Moreover, A payer-agnostic and firewalled MSO can offer assurances to managed care organizations (MCOs) during contract negotiations.

Potential Financial and Ethical Issues Associated with MSO Restructuring

If MSO restructuring does not align with existing regulations – through undue control exercised over a healthcare practice, for example – then the MSO may be fined or taken to court, which can entail a potentially heavy financial cost. 

Many of the regulatory pitfalls that MSOs can face are also ethical in nature. MSO restructuring can violate CPOM principles in the following ways:

  • Determining which diagnostic tests are appropriate for a particular condition (this should be up for healthcare providers to decide)
  • Determining the need for referrals to or consultation with another physician or specialist
  • Determining how many patients a physician must see in a given time period or how many hours a physician must work (there is a potential risk this kind of control could lead to overwork and burnout)
  • Incentivizing or pressuring staff to increase services or sales
  • Implementing revenue-oriented patient scheduling systems (MSO restructuring may be motivated by financial reasons, but if profit becomes the sole aim, then healthcare providers and patients may suffer)

Key Considerations for Effective MSO Restructuring

MSOs must be carefully structured to ensure that they do not contravene state CPOM principles. In general, permissible and ethical MSOs will clearly delineate between the medical and non-medical aspects of a healthcare practice. The MSO should, at all times, only be involved with the non-medical aspects of the practice. Meanwhile, physicians should maintain ultimate responsibility for patient care.

MSOs should also ensure that physicians have control over the selection, oversight, and termination of clinical personnel, as well as the selection of medical equipment and supplies.

In terms of making sure that MSO restructuring is cost-effective, the decision to build or purchase MSOs should be informed by a broader strategy to gain market share, increase revenue, improve profitability on risk business, or fill a need for central infrastructure to manage administrative services.

Also, if you want to determine what services to build and which to buy from other MSO providers, you need to understand factors such as market need and readiness, existing infrastructure available, and organizational readiness to scale. 

Like when you make any other strategic decision involving a new service, you should engage in diligent research and planning before building an MSO. This should involve detailed cost modeling to estimate implementation costs; the potential to restructure, scale, and redeploy resources; and profit and loss estimates. This can be worked out using any claims or expense data that you have available.

When detailed planning is in place, you can build effective MSO services that can standardize services across organizations, reduce the duplication of services, and enable small healthcare practices to access services they may otherwise be unable to provide. But for such planning to be successful, it is critical to understand the market need and the scope of services before carrying out MSO restructuring.  

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